Copper prices rose back towards two-year highs overnight after data showed a rise in Chinese factory output, though the numbers also pointed to trouble ahead for the world’s biggest metals consumer.

Benchmark copper on the London Metal Exchange (LME) was up 0.8 per cent at $US6,435 a tonne at 1601 GMT, near Monday’s peak of $US6,633.

The metal used in power and construction has rallied from a low of $US4,371 in March, when the new coronavirus spread worldwide, and many analysts think prices are too high.

“We should correct to the $US6,000 level,” said Robin Bhar, an independent analyst.

Strong demand for copper from speculative investors meant a deeper correction is unlikely in the short term, he said.

China posted a forecast-beating 3.2 per cent year-on-year increase in GDP in the second quarter and a rise in industrial output, but signs of weak demand at home and abroad pushed its stock markets down almost 5 per cent.

The United States said it had not ruled out further sanctions on top Chinese officials to punish China for its handling of Hong Kong.

It also said it was studying the national security risks of social media applications including China’s TikTok and WeChat.

China said it would respond to what it described as “bullying” tactics from Washington.

Analysts polled by Reuters expect LME cash copper to average $US6,173 a tonne in the fourth quarter. Speakers at the HKEX Commodities Forum said tight supply could extend copper’s rally, but downside risks were rising.

US retail sales increased more than expected in June.

The European Central Bank will use its stimulus firepower fully, even as the euro zone economy shows some signs of rebounding, ECB President Christine Lagarde said.

China’s primary aluminium production rose to 3.02 million tonnes – its highest in six months – in June.

LME aluminium was down 0.8 per cent at $US1,670.50 a tonne, zinc rose 1.1 per cent to $US2,224, nickel fell 0.5 per cent to $US13,455, lead was little changed at $US1,845 and tin was up 0.5 per cent at $US17,370.